Get Ready For The De Blasio Construction Boom In New York City

Mayor-elect Bill de Blasio will be New York's most pro-development mayor in decades.

He'll have no choice but to be.

De Blasio has an expansive, progressive vision for remaking the city: Greatly expanding affordable housing, providing universal pre-kindergarten, and combating income inequality. That's all going to cost money.

He also faces big fiscal challenges: The city's annual budget is around $70 billion, and he faces a $2 billion deficit in the coming fiscal year. His plan to expand pre-kindergarten and after school programs will cost another $530 million a year. The city's looming, unfunded liabilities for retiree benefits constrain spending options.

Most city worker unions have been out of contract for four years and they want raises. In fact, because their base pay has been flat for the four years they've been out of contract, they want retroactive raises totaling $7 billion. They won't get that because the money simply isn't there. But they haven't held out all these years refusing to sign contracts with Mike Bloomberg only to get nothing from the city's new, progressive mayor.

The city and agencies that serve the city (principally, the Port Authority and the Metropolitan Transportation Authority) have huge capital needs. In order to gain jobs and residents, the city will need to invest in infrastructure, but what few funds are available are likely to get sucked into the hellmouth that is employee compensation.

De Blasio has proposed a tax increase on people making over $500,000 a year, but that won't be a solution to his fiscal challenges. First, the tax increase he's proposed is small: just $530 million a year, or less than 1% of the city's budget. Second, it requires approval from New York's state legislature and Governor Andrew Cuomo, who are likely to be resistant.

If he hopes to buy labor peace and fulfill his progressive missions, de Blasio will have to find another way to get more money coming into the city's coffers. That's where development comes in.

To the untrained ear, de Blasio has run as a critic of developers, complaining that too many "luxury condos" are going up in New York. But he has also been clear that more development is a key to growing the city's economy and addressing the affordability crisis. And while many of the city's business elites are freaking out about de Blasio's "class warfare," he's maintained good links with (and raised a lot of money from) the real estate industry.

Last summer, de Blasio gave a speech to NYU's Wagner School of Public Service on fostering economic development in New York City. The speech is worth reading in full, but it's especially interesting for de Blasio's strong pro-development bias:

First and foremost, when given the choice to grow or to sit idle, we need to grow and we have to be aggressive about it. There are factors beyond our control — economic conditions, bureaucratic interference from afar — that can kill good projects. The things I value as a progressive — good jobs and affordable housing — cannot happen if projects stall or never materialize. If we aren’t doing everything possible as a City government to spur on development, even if valid compromises are included, we risk nothing getting built at all, and that is the worst possible outcome.

Page 2 of 3 - De Blasio has been critical of the Bloomberg-era approach to fostering development, which has relied heavily on subsidies and tax credits to induce developers to build affordable housing. He wants a new approach, which would make "inclusionary zoning" (a set aside of housing-units at restricted rents or prices for low and moderate-income families) mandatory. But he's smart enough to know he can't get something or nothing, which is why he's repeatedly said he wants to give developers increased development rights — the ability to build more square feet of building on a given plot of land — in exchange for affordable housing.

The problem with these sorts of upzonings is that they are often politically unpopular: Incumbent residents resist greater density because of the construction, noise, crowds and cars it brings to their neighborhoods. That's why Bloomberg focused his upzoning efforts on neighborhoods like Williamsburg and Long Island City where the prior use was light industrial and few residents were around to complain.

But the city is running out of well-located neighborhoods like this, and the loss of warehouse and similar space due to these neighborhoods' transformation has been driving up the cost of doing business here. The next round of upzonings will have to come in neighborhoods full of existing residents and all the political resistance they bring.

De Blasio will have a key advantage in getting those upzonings done: by tying upzonings to inclusionary housing and the affordable housing issue, he will be able to paint NIMBY opponents of density as opponents of affordable housing. The debate won't be over whether every part of New York should be given over to luxury condo towers; it will be about whether we can grow our way into housing affordability.

If he upzones aggressively with an inclusionary housing mandate, de Blasio will be able to meet much of his goal of 220,000 new or preserved units of affordable housing at no taxpayer expense. The development will generate fees, transfer taxes and property taxes that will pay for his other policy goals. In some neighborhoods, the city could even sell off the added development rights, as Bloomberg is proposing to do with his last zoning legacy: An upzoning of the office district near Grand Central Terminal in Midtown.

Inclusionary zoning is not my preferred approach to affordable housing. Directing developers to build luxury apartments and rent them at a discount to people with low incomes is an inefficient way of housing the poor and the middle class. But the land under New York City is so valuable that upzoning it will create tremendous economic and fiscal benefits, even if some of those benefits are allocated inefficiently. The approach isn't perfect, but I'll take it.

This is why the "Sandinista" critique of de Blasio was so silly. He is definitely a tax-and-transfer liberal who wants to redistribute the economic gains that have, in the last decade, accrued mostly at the top. But he understands how essential robust private economic activity is to making those transfers possible.

Page 3 of 3 - If de Blasio hopes to achieve his broader progressive agenda, he'll have to get the real estate issue more or less right — and that bodes very well for development, affordability and growth in New York City.